As you work your way through the divorce process, you’ll need to consider division of property, finances, and even your auto insurance. It isn’t easy going through a divorce, but it’s essential that you close all of the loops to avoid big trouble – and big expenses – down the line. Car insurance is an area you can’t afford to leave for last. And, by the way, when’s the last time you actually read your insurance policy?
Top Three Reasons You Can’t Afford to Wait
So you are separated, or in the divorce process and think you’re still completely covered by your insurance carrier. Guess what? You may not be. The following three scenarios happen all too often:
Your Coverage Was Changed
Most auto policies allow changes to be made by a named insured that are binding on all insureds under the policy. That means if your separated or divorced spouse is still on the policy, she can change or drop your coverage without you ever knowing. In the eyes of your insurance company, anyone listed as a primary insurance holder has the power to update, change, or drop insurance coverage for any and all vehicles listed on the account. That means, for example, that she can have collision or comprehensive coverage dropped for your car and you will never know until it is too late. You are bound by the changes. Good luck with the front end damage from that deer.
You Are Sucked Into a Fraud Investigation
Marriages end for lots of reasons, and sometimes it’s because of infidelity, gambling or drug problems. If there is any chance that your soon-to-be ex might get involved in something sketchy to get some quick insurance money, or cover up a lie, you will be investigated right along with her. Insurance companies are pretty savvy about insurance claims for stolen cars or vehicles that just happen to catch on fire. Or maybe she rear-ends someone and claims the man in the car with her was you. Ever been deposed or had your phone records requested in a subpoena? It can happen.
Your Auto Insurance Lapses Due to Non-Payment
If you fail to change the billing address of your auto insurance and your ex does not pay or notify you, your policy may lapse without you ever being notified. A lapsed insurance policy can mean that you are violating the law by having less than the minimum amount of coverage, even if the vehicle is only parked in your driveway and never driven. If you are driving without coverage and are involved in an accident or get pulled over for a traffic violation, you will find yourself with a stiff fine or worse. If you cause an accident, your insurance company will have no obligation to represent you and you can be sued in civil court for personal injuries and property damage caused by your negligence. Not to mention the criminal penalties handed down in most states for driving without insurance.
Overview of Auto Insurance Coverage Options
Always check with a licensed insurance agent or look into your state’s requirements regarding minimum coverage amounts required and lienholder’s insurance coverage requirements.
Liability insurance will pay for bodily injury and property damages to others in the event you are in an accident that is determined to be your fault. Most states mandate a minimum amount of liability coverage to be in effect for each driver. You will have the option to choose a higher level of liability coverage than the minimum state requirement. Your liability coverage will not pay for your injuries or property damage.
Collision coverage will pay for the damage to your car as a result of an accident even if you are found at fault. If your car is totaled, collision coverage will pay you for the value of your car, up to the coverage limit. If your car is older and not worth much, you may choose not to pay the higher premium for collision insurance. If your vehicle has a high book value, the cost of collision coverage may be worth the protection. Keep in mind that if your vehicle is under a lien from a bank, collision insurance coverage is likely required until the loan is paid off.
Liability and collision coverages cover vehicular accidents, but comprehensive coverage will cover your car for any damage that is not necessarily the result of an accident. If your car is stolen, you hit a deer or you get damage from severe weather, comprehensive coverage will pay for the cost of the repairs or pay the book value of your car (up to the coverage limits) if it is totaled. This type of coverage can be costly, and the value of your car may determine if you’d like the extra insurance. Again, if the bank still owns your car, comprehensive insurance coverage might be required until the car loan is paid off.
Uninsured Motorist Coverage
If you get into an accident at the fault of another driver, typically his or her liability coverage would pay for your vehicle damage and medical bills. The states require that all motorists carry a minimum amount of liability insurance coverage, but unfortunately, not everyone obeys this law. If the at-fault driver doesn’t have auto insurance, you may end up having to foot the bill to pay for damages and bills. This is where uninsured motorist coverage comes in. It can help pay for your bodily injury and vehicle damages if you are hit by a driver who failed maintain minimum auto insurance coverage. Uninsured coverage is required in most states, and is usually an affordable premium. Check with your insurance company, and read your policy, to determine if your uninsured motorist coverage also covers family members who drive your vehicle and passengers in your vehicle.
Underinsured Motorist Coverage
While every state defines “underinsured” a bit differently, an underinsured motorist does have liability coverage, but his coverage is not enough to cover the cost of your bodily injury or vehicle damages. This type of coverage becomes a big issue when an accident results in permanent or catastrophic injuries.
Generally, when you (or other covered persons under your policy) are injured due to an accident with an underinsured motorist, this insurance will fill in the gaps, subject to certain set-offs depending on the state. This coverage is not required to be offered in all states, so check with your insurance agent if it is a coverage you want to consider. It is sometimes lumped together with uninsured motorist coverage. Always check with your insurance company to determine if your underinsured motorist coverage also covers family members who drive your vehicle and passengers in your vehicle.
Dividing Your Auto Insurance
If you and your ex-wife are on the same insurance policy, there are certain things that you must do once you begin the process of divorce. Follow these tips to ensure you are properly covered at all times.
- Decide who will maintain the policy and who will get a new policy. Some considerations are: Was the policy yours from before the marriage and she was added? If the house is insured under a bundle deal with the car insurance, it may make more sense for the person staying in the house to keep the auto policy. If one person is moving out of the state, it may make more sense for that person to shop for a new policy.
- Be Clear on Which Policy Covers the Kids. Teens are expensive to insure, and you may lose some of the discounts you previously enjoyed as a family. When you and your ex are making decisions about auto insurance for your children, consider whose house the teen will reside in more frequently and whose car the teen will drive. Most insurance companies require all drivers living in your household to be listed on your policy unless they have their own coverage. If they will be driving both parents’ cars, check with your insurance company on how the policy defines resident household members and family members who do not always reside with you. They may need to be covered on both policies.
- Purchase a new policy before being removed from the prior shared policy. If the policy is yours and will stay yours, make sure your ex has ample warning and time to get her own policy before you drop her from coverage, especially if you have kids that will travel with her.
- Make sure your insurance agent knows what is going on when purchasing separate auto insurance. Remember that resident household thing? If the divorce is not finalized and both you and your ex live at the same address, your policy may be exposed if there is not a clause specifically excluding her from coverage.
- Separate vehicle titles. Many insurance companies require the person insuring the car to be on the title or the lien.
Auto insurance is an important part of your financial safety. Read your policies, and make sure you divide your policies as soon as divorce becomes inevitable. Have the discussion with your divorce attorney, and because state laws and insurance companies vary, it is best to discuss your insurance options with a licensed insurance agent.
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